Job cuts mount as banking fees slide

Goldman Sachs, which has its headquarters in New York (above), is reportedly looking to cut its 300-strong Asia investment banking workforce by up to 30 per cent.
Goldman Sachs, which has its headquarters in New York (above), is reportedly looking to cut its 300-strong Asia investment banking workforce by up to 30 per cent.PHOTO: BLOOMBERG

Slump in equity underwriting revenues puts pressure on Asian investment banking

HONG KONG • The future of Asian investment banking is again under scrutiny as global banks scale back their operations in the region.

Goldman Sachs and Bank of America Merrill Lynch (BAML) are each cutting investment bankers in response to declining advisory fees and heightened local competition.

While the cuts in both cases span multiple products and markets, fee data shows that a slump in equity underwriting revenues is exerting the greatest pressure.

Fees from Asia-Pacific equity and equity-related deals have plunged 23 per cent this year, according to Thomson Reuters and Freeman Consulting data.

In contrast, debt underwriting revenues are up, while regional mergers and acquisitions (M&A) activity is down only about 5 per cent from the same period last year.

Bankers and analysts believe many more equity capital market (ECM) cuts lie ahead as Chinese banks continue to gain market share and offer far lower fees.

"I'm not surprised at all that they are cutting jobs," said Ms Veronique Lafon-Vinais, associate professor of business education at the Hong Kong University of Science and Technology, who has also worked in banking in the United States, Europe and Asia.

"If you look at investment banking revenues in Asia, they have historically always tilted towards ECM. And now you have Chinese banks coming in strong, so there is way more competition."

Among the senior bankers leaving BAML are Mr Peter Kim, head of Korean investment banking, and Mr Niraan De Silva, head of South-East Asia ECM and equity-linked capital markets Asia-Pacific, sources told the International Financing Review.

Also departing in the Australia office are Mr Ben Stewart, senior manager of debt capital markets and syndicate, and Mr Guy Foster, head of Australian ECM.

BAML planned to cut two dozen investment bankers across Asia. Goldman is looking to reduce its 300-strong Asia investment banking workforce by up to 30 per cent. The bank declined to comment.

Figures from Thomson Reuters SDC show Goldman remains the top M&A adviser for transactions with Asia-Pacific involvement, but has slipped from first to eighth on the Asia ECM league table.

In terms of fees, the US bank ranks only 15th for Asian equity underwriting, excluding Australia, this year, behind the likes of Sinolink Securities and Guotai Junan Securities.

In 2014, Goldman earned about US$204 million (S$278 million) from Asian ECM underwriting, according to data from Thomson Reuters and Freeman Consulting. Last year, it earned US$107.7 million and, so far this year, it has taken in just US$44 million. The data uses a proprietary model to estimate earnings where fees are not disclosed.

Goldman is far from the only Western bank experiencing Asian ECM struggles.

Deutsche Bank, which rose as high as third on the same fee table in 2011, is now 16th. Credit Suisse has fallen from second in 2014 to 34th this year.

The slowdown of US listings from China has been particularly painful for Western arrangers, while Hong Kong initial public offerings now come with inflated book-running syndicates and measly underwriting fees.

The recent US$7.4 billion listing of Postal Savings Bank of China handed underwriters a US$118 million payday, but that was split unequally between 25 joint book runners.

REUTERS

A version of this article appeared in the print edition of The Straits Times on October 04, 2016, with the headline 'Job cuts mount as banking fees slide'. Print Edition | Subscribe